Great escape

11 Sep 2013 By Reynolds Holding

A U.S. court says shareholders lost the right to sue on the mortgage lender’s behalf after it was sold to BofA. That squelches one way to hold the likes of ex-CEO Mozilo to account. And it’s a reminder to litigious stock owners to cover all their bases sooner rather than later.

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Former shareholders of Countrywide Financial lost their right to sue directors on the mortgage lender’s behalf after its 2008 takeover by Bank of America, the Delaware Supreme Court ruled on Sept. 10. The court said the shareholders could not pursue a so-called derivative action because relinquishing their shares in the acquisition meant they no longer had legal standing.
Delaware law includes an exception to that rule when the sole purpose of a transaction is to shield officers and directors from liability and deprive shareholders of the power to sue. But the court decided that the Countrywide investors didn’t qualify, even though alleged wrongdoing by the board may have made the BofA acquisition necessary.
The court opinion was issued at the request of the U.S. Court of Appeals in San Francisco, which is hearing the shareholders’ appeal of their lawsuit’s dismissal and needed an interpretation of Delaware law, which governs the question of the investors’ standing.

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